CDS Drink At The Last Chance Saloon!


Commissioner McCreevy is clearly signalling a get tough policy in the absence of any genuinely credible industry attempt to reform the CDS business.


As he enters the final period of his term as a Commissioner, Charlie McCreevy has rarely been busier. The failure of the users to create a credible CDS CCP solution or similar has left the EU seething and a series of governments breathing down the neck of the Commission to produce a safer more transparent environment.

The result appears to be that the EU has already moved to the last chance saloon and is seeking a regulatory solution from on high. That is intriguing as it is invariably the very final option in financial markets simply because it takes a long time and the banks are usually highly efficient lobbying organisations – and thus the road to legislation is usually very lengthy and the eventual legislation often somewhat watered down from its original purpose.

However, as things stand, banks are being widely vilified for their recent performance and their political capital may have evaporated as fast as their balance sheets. Moreover, defending their positions as quasi-private or fully nationalised entities may mean they have to meekly fall into line with regulation at the EU level.

Naturally banks do not wish to lose their cash cow of the CDS market and in the US attempts to create a democratic open CCP have gradually moved towards creating an “adults-only” CCP for the major consenting counterparties. It seems the EU is keen to see off such initiatives on their turf and it will be intriguing to see just how successful this very profitable backbone of the OTC market is at remaining an opaque high margin transaction for key banks.


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